All Forum Posts by: Iman Yu

wow I can't believe how great of a community we have on BP. It's so wonderful to see how many people are willing to give me their thoughts on my post :-D

@Ray A. What you said makes sense to me. It has advantage is a multiple bidding situation or when the seller needs a quick close. From a buyer's perspective though, it's higher in risk so I would think cash deal should be offered only when the deal looks extremely attractive from cash flow/appreciation/location/some other reasons.

@Piet Strydom Thank you for your thorough feedback on this. After looking at my sheet again, and I realized I made a mistake. You are right. Cash deals will provide better net cash flow, cash ROI, total ROI (including equity). After looking at my analysis, I realized that cash deal would only have a negative impact on the CoC ROI % because it takes total cash flow/total cash outlay.

you brought up an interesting point about ROA vs. ROI. ROA isn't something I've looked into before, but from what I read, it's an indicator used to calculate how efficiently I can generate using my total asset? If that's the case, ROA is higher when I finance vs. buying it in all cash?

In your last point, you mentioned 'paying more on interest than the rental will make it a bad investment decision'. The 'interest' you are referring to there is the 'interest payment on the mortgage' and the 'rental' you are referring to here is the 'gross rental income'?

@Dana Whicker What you said make sense. Have you done cash deals in the past for any buy & hold properties? Why did you choose that over financing it?

@Lyall Storandt Thank you for all the detailed feedback and examples. That really helped me to clear up a lot of questions and confusions I had on this.

"I know you know this, but your annual return as a percentage is your annual net cash flow divided by your initial cost basis."

That calculation above is what I use to calculate CoC ROI%. is that right?

I think you hit a great point on this topic. The amount of capital I have available to invest requires me to use leverage to my advantage. In my case, I would only consider cash if that's my only way to get in on a great deal. 

Can I PM you with some further questions please?

@Kris Fox You are right. Cash deals increases on the net cash flow because the mortgage in that scenario is 0. Cash deal has no impact on gross cash flow, NOI and it has negative impact on CoC ROI.

Thanks for pointing out the ROI calculation for 100% down payment. That's something new to me.

As far as risk goes though, I would assume financing through down payment is less risky than an all cash deal?

@Scott Harlow what you said really peaked my interest! Have you bought a property with 100% cash and refi it later to get cash out? Is that something you can check with the bank on the particular property before you make the purchase or this is where you need to know the true value of the property before you purchase and use that knowledge to refi later? Does it only apply to buy the house cash way under the market, fix it and refi it under a higher ARV? IF I buy the house cash, I wouldn't be able to get an appraisal on it before I purchase it then how would I know what it would refi for? I am a conservative buy & hold investor so I need a strategy that would work for that.

So I have been running my cash flow in Houston area for both SFH and multi's. I am pretty comfortable calculating the monthly cash flow, Cash ROI/CoC, cap rate and etc. I am seeing some good cash flow and some bad ones. If it cash flows more than 8%, then I take a further look at the numbers.

All my calculations for cash flow is based on 25% down payment, 3% closing cost and some estimated repair cost but what do I do if I come across a cash deal?

If a house is sold at 100k and I put 25% down on it vs. if a house is sold at 100k and it requires 100% cash to purchase, the chance for a cash deal to cash flow is very unlikely.

Are you supposed to treat cash deals differently? Is there any reason you would consider cash deal if you are a buy & hold investor?

Also, why would a seller want a cash deal vs. conventional financing? 

would like to know your thoughts on these topics!

@Shaka Farrier the mention thing has a trick to it! It took me forever to get it working. First of all, the browser matters. Chrome tends to work better than IE. 

Then, most importantly, to create a mention that triggers an alert to the other user, you need to type @ and then their last name.  Once you type 3 letters out, the name will appear at the bottom and you can select it. I typed '@far' to get your name popped up.

Oh just to add a little bit of my .2 to what we are talking about here...the 50% rule indicates that the 50% of your total monthly rent should cover your total estimated monthly expenses. The expenses here should be tax, insurance and everything else except your mortgage payment. 

Then to calculate NOI, you take net income - total expenses.

When you have the NOI number, then you can take NOI - your mortgage payment to get your estimated monthly cash flow number.

Try it out :-)

@Shaka Farrier I see so the VA loan works very differently then the conventional loans. Since your cash outlay is very different, I would gather all that information up front and calculate your cash flow carefully. If the down payment is lower, you can end up with a bigger monthly mortgage amount and that may make it impossible to meet the 50% rule.

If you aren't familiar with he 50% rule, here is a post on that.

https://www.biggerpockets.com/forums/88/topics/133...

good luck!

@Robert Farrisno problem. I can share my sheets with you if you are interested. Just PM me.

http://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/

that's a great deal analysis overview btw. :-)

@Robert Farris I look only in rental properties. I have 2 worksheets that I use. One for multi family and one for single family. 

I care mostly on cash flow and CoC.

I have not considered appreciation as much because I don't think I have the knowledge to make that kind of speculation yet so I rely on my cash flow analysis mostly.

I use 1% rule as rule of thumb which means it rents at least at 1% of purchase  price. 

After that, I only look at properties that cash flows at 10% minimum but I would really consider it as a good deal if it gets above 12%. I use the same principle for CoC.

I hope that helps.

@Shaka Farrier The calculation looks right. 

Personally, i think the return is a little low. I typically like to look at duplex that rents about 1300 monthly total and purchase price at about 110k. However, that's a class C duplex.

What market are you in?

I do have a multi analysis sheet that i like to use which gives ROI in both dollar amount and % based on ur cash investment up front. If you want to try that, I can email it to you. please PM me :-)

@Natalie Kolodij @Austin Faux

I went and looked up on the MAO calculation and it seems to me, most of the research tells me it's (0.7*ARV)-Total Repair Cost (and any Wholesale Profit if you are a whole saler but that doesn't apply in this case).

If we apply that in this case, the MAO would be (0.7*320k)-(30k+210k)= 224k-240k= -16k

That makes is a 'NO DEAL.' 

In my humble opinion, this isn't a realtor that you should work with, Austin. This realtor is just trying to trick you into buying a BAD deal! 

Below is the calculation and article I found. 

I hope this is useful!

http://www.houseflippingonline.com/Maximum-Allowable-Offer.html

ARV = After Repair Value

RE = Repair Estimate
WP = Wholesale Profit
The MAO Formula is expressed as follows:

Maximum Allowable Offer = .7(ARV)- RE - WP

@Fred Heller yes you are right. Although, that may be because the seller doesn't show the property unless it's under executed contract.

I still wanted to ask about it because I was thinking about that property since about a month ago but because I am a newbie, I need to know if I am on the right track before I pull any trigger. 

This is a duplex that I've been interested in and I would like to get your feedback on it. 

It's not a duplex that I will be living in so it will be getting a 25% down non-owner occupied loan on this one. The load we got on that is a 30 year term @ 4.37%.

The asking price for this duplex is 119k but I think we can get it at 110k because it's been on the market for 60 plus days.  Below is the spec on the duplex.

Both units are currently rented. 1 unit @ 675 and 1 unit @ 650 (tenant has been in this unit for 10 years).

Here is my calculation: 

NOI = gross income minus all expenses = $731

Monthly Cash Flow = NOI - Mortgage = $298

$1215- $433= $298

That's about $150 per unit with a pretty conservative calculation. 

The neighborhood is in Stafford so it's close to decent but I think it's still a class C area. 

What do you think?

What are some things to think about that's not on the cash flow analysis?